18 July 2012

New York Hospitals: Also Uninsured

Every hospital makes mistakes. But some New York City hospitals may not have enough money to pay for them.

Several of the city’s most troubled hospitals are partially or completely uninsured for malpractice, state records show, forgoing what is considered a standard safeguard across the country.\

Some have saved money to cover their liabilities, but others have used up their malpractice reserves, meaning that any future awards or settlements could come at the expense of patients’ care, and one hospital has closed its obstetric practice, in part out of fear of lawsuits.

Executives of these hospitals, most of which are in poor neighborhoods, say their dire financial circumstances and high premiums make it impractical to pay millions of dollars a year for insurance.

But insurance experts say that though dropping coverage may make economic sense in the short term, it is hardly in the best interest of patients, and in the long term it may be costly to hospitals and their bondholders, including some bonds backed by the state, should large judgments force them into bankruptcy.

Hospitals in New York do not need malpractice insurance to function, and they need not tell patients when going “naked” or “bare,” in industry parlance.

Many states do not require malpractice insurance, and New York is not the only city where hospitals go without coverage. Generally the uninsured hospitals are in areas where juries award big judgments, insurance executives say.

There is no central record of which hospitals have insurance. But in 2009, the state Health Department took a survey of so-called self-insured hospitals. It found that three — Interfaith Medical Center, Kingsbrook Jewish Medical Center and Wyckoff Heights Medical Center, all in Brooklyn — were completely self-insured.

Twelve other hospitals across the city were partially self-insured, including St. Vincent’s Hospital in Manhattan, which went bankrupt and closed in 2010; Lenox Hill in Manhattan; Jamaica Hospital Medical Center in Queens; and New York Hospital Queens.

Some of the 12 had bought insurance to cover lower-dollar or “primary” claims, but not “excess” judgments. The others had excess coverage but not primary.

The Health Department has not done a follow-up survey, but hospitals that responded to questions about their coverage said it had not changed.

In interviews, some hospital executives said their physicians had separate insurance which is subsidized or reimbursed by the hospital. Interfaith, for one, gives its emergency-room physicians a letter promising to assume liability, said Luis A. Hernandez, the hospital’s chief executive.

Without insurance, many hospitals set aside money to pay for claims, but a review by The New York Times of state records and hospital financial records indicates that several of the hospitals have insufficient reserves to cover their malpractice liabilities.

Two of the hospitals without insurance have no money set aside, according to their financial documents and interviews with hospital officials. In the case of the third, Kingsbrook, it is unclear from financial statements if it has any money in reserve.

Dr. Linda Brady, the hospital’s chief executive, was overseas and was unavailable for comment, said Enid Dillard, a hospital spokeswoman. But Ms. Dillard, when asked if the hospital was paying malpractice claims out of its day-to-day budget, said that it was a fair conclusion.

In 2009, Wyckoff Heights Medical Center, in Bushwick, had $50,000 in its malpractice fund; in 2010, the amount put aside to cover claims had dwindled to “0,” according to its financial statements. Yet the hospital listed professional liabilities of $37 million. Ramon Rodriguez, the chief executive, declined to comment.

A jury awarded a $31.6 million judgment against the hospital in 2006, which was later reduced to $12.9 million and is being paid out in installments through 2018. As a result of that case, Mr. Hernandez said, the hospital closed its obstetric unit because it could not afford the liability. The hospital was also not delivering enough babies to justify the expense, he said.

Henry W. Fust of Fust Charles Chambers, a Syracuse firm that provides accounting services to hospitals across New York State, said that for hospitals to “go totally naked” was very unusual and “would draw into question the viability of the entity.” It would also be difficult for any patient to recover money from hospitals like Wyckoff and Interfaith, which are already deeply in debt.

An absence of insurance is generally a sign of double trouble, signifying that rates have gone up because of high claims. Many commercial insurance companies pulled out of New York years ago because litigation was frequent and excessive said Edward J. Amsler, vice president of Medical Liability Mutual Insurance Company, which is owned by its policyholders. Financially stable hospitals have responded by banding together in groups like Mr. Amsler’s, setting premiums and reserves and sometimes sharing risks. (Lenox Hill has primary liability coverage through this company, setting aside reserves for larger claims.)

Some hospital executives say, however, it is better to be effectively uninsured, because lawyers follow the money.

Having malpractice insurance is like asking for a lawsuit to be filed, said a former hospital administrator who did not want to be named to avoid upsetting potential employers. Malpractice lawyers said that underinsured hospitals put them in a tricky position.

Lawyers say they were often forced to take payment on installment, or to try to pin more blame on physicians, who may have their own insurance. Martin Seinfeld, a malpractice lawyer, said he had had three cases this year involving Jamaica Hospital and New York Hospital Queens in which hospital lawyers had held out the specter of bankruptcy if he did not reduce his demands.

When a hospital is bankrupt, its creditors, including malpractice plaintiffs, are often forced to accept less than they are owed through litigation.

Camela Morrissey, a spokeswoman for New York Hospital Queens, declined to comment on Mr. Seinfeld’s assertion or on the hospital’s financial condition. Jamaica also declined to comment.

Mr. Hernandez, of Interfaith, said the hospital was not trying to duck responsibility.

Correction:

An earlier version of this article said incorrectly that Kingsbrook Jewish Medical Center’s chief executive, Dr. Linda Brady, declined to comment. She was in fact overseas and unavailable for comment, according to a hospital spokeswoman.

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